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Posts Tagged ‘UK’

Weakness in the Pound Quickly & Simply Explained

March 2nd, 2010 Michael McDonough Comments off

Several weeks ago Fitch warned that out of all Europe’s AAA rated sovereigns the UK was the most vulnerable to lose this rating. But, most analysts believe this would not be an issue as the government would implement austere fiscal policies reigning in large deficits and a growing debt load. Such policies do not come without political backlash, which is why a fear of no majority in the British Parliament is raising concerns that Britain will be unable to enact the necessary policies to stabilize spending. As you can see from the falling pound these risks are now being priced into the market, and trading will likely be volatile until the market receives a clearer picture of the upcoming elections, and whether or not parliament will be able to make these tough decisions without a majority if this does occur. The UK is no stranger to financial strife. In 1976 the UK received a loan from the IMF on the back of concerns over its debt and large budget deficits.

UK Budget Deficit (% of GDP)

Source: Bloomberg

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Comments from Fitch and EU Commissioner on Greece & Credit Ratings

February 9th, 2010 Michael McDonough Comments off

EU Commissioner Joaquín Almunia Mira recently said that he believes the current situation is the most difficult situation the EU has ever faced, and that Thursday’s meeting will be critical.  He also said EU leaders have indicated that they will support Greece.  Fitch anticipates that a Greek plan is ‘achievable’, but not ‘a given’.  Fitch’s analyst said, “A bailout for Greece is not completely out of the question but the likelihood of it happening is not strong enough for Fitch to base its ratings outlook on.”  Reuters is also indicating that in principle German government officials are ready to help Greece, and along with other CBs and governments are studying support plans.  German press is reporting that German officials are working on a support plan for Greece.

Fitch also highlighted that Greece could come under some serious pressure in April/May when the bulk of its debt outstanding is coming due.  Fitch also believes the UK is the most vulnerable AAA rated sovereign, stating the credit needs a ’strong exit strategy’.   Fitch went on to say that the default probability for Portugal is close to 0.

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